Wednesday, April 9, 2008
Positive Chart Patterns
by David Yu
I posted Chart 1 last week showing you last Friday was only the 4th time over the past 12 months that there were no stocks gaped up throughout the day. Every occurrence seems to take place at a critical trend reversing juncture. Upside reversal took place when the prior trend was down, and downside reversal took place when the prior trend was up. Therefore, Friday's occurrence should mark the beginning of a new downtrend since the market had trended higher since mid March. And, the market did reverse that prior uptrend and began to trend lower since Friday as the Nasdaq had since lost 2% and the S&P 500 had lost 1.16%. But, the overall traders' sentiment remains quite bullish, and money flows stay relatively positive. As much as the tech-heavy Nasdaq and the Nasdaq 100 had each shed more than 1% today, the tech sector's ratio of uptick trade value to downtick trade value came in at a positive 1.06. This is likely due to recent positive development in chart patterns.
Chart 1
One of these bullish chart patterns in the making is AAPL (Apple). Chart 2 below shows the development of a near perfect Cup and Handle bullish reversal pattern. The round bottom completes the Cup portion of the pattern while the Handle (retracement from the top of the Cup) appears to be forming a bullish Flag (double red lines). Bullish Flag is a continuation pattern in an uptrend. Ideally, the Handle shouldn't decline more than 1/3 of the advance from the bottom, or a decline below $145 (red arrow).
Upon completion of this Cup and Handle pattern, the probable target price is approx. $200, which would be right at the previous late December resistance level. Since Apple is the Nasdaq 100's largest component, what's positive for Apple is also positive for the Nasdaq.
Chart 2
In addition to the Nasdaq, the S&P 500 is also in the process of forming a positive chart pattern. Chart 3 below shows an Inverted Head and Shoulder's bullish reversal pattern. The probable target of 1500 is also coincidentally the S&P 500's late December resistance (blue circle).
Chart 3
While these chart patterns give us glimpse of hope, none of them, unfortunately, have been completed yet. Apple will have to advance above $160 with rising volume and the S&P 500 will have to break out of 1390 in order to confirm the completion of the patterns (re-visit Chart 2 & 3). Thus far, there's no confirmation and there's no reversal yet. Near term trend is still down.
The daily change of Apple's CLV (Close Location Value) topped out on 3/26/2008 even though Apple continued to advance and ratcheted up another 10% through 4/7/2008. CLV is a value based on closing location relative to the day's trading range.
Chart 4
The CLV of the S&P 500 fared worse than Apple. The Daily CLV change of SPY (S&P 500 ETF) had not only fallen way below its 3/25/2008 peak, but it had also been staying mostly below zero.
Chart 5
These and other technical issues will have to be resolved before we and the market can all move on.
email: dyuguard-2@yahoo.com